I greatly appreciate your article, but want to remind that there are far worse consequences of CDS – outside the US.

The economy of Estonia is on the verge of an extremely severe crash due to a high exposure to CDS, now called “the Baltic Debt Trap” by economists all over the world. Its consequences are destroying many good companies, making hundreds of thousand suffer from severe poverty and hunger due to unemployment, and throwing thousands of good people out of their homes due to foreclosures, not only in Estonia but also in many other countries.

We find it fundamentally unfair that this destructive financial bomb, created by American finance gamblers and endorsed by the US government, is allowed to cause severe suffering among hundreds of millions of people outside the US.

The US government is the sole culprit, having eliminated the regulations that were created in the 30-ies to prevent the emergence of another “megabubble” depression.

Every economics and business student in the US, and consequently every financial advisor (including the great deregulator, Larry Summers) has been carefully informed during their studies about the mechanisms of the great depression and the importance of preventive regulation, so don’t say your experts did not know. Therefore, the US government must carry the whole economical responsibility for the consequences of the actions leading to the present crisis.

The US is now like a neighbor who, because of conscious violation of fire prevention rules, has caused your house to catch fire, and then prevented the firemen from stopping the fire (refusing to stop CDSs), finally refusing to pay for the restoration of the house.

Can you understand that any remains of sympathy for the US is rapidly withering away in the world? In Europe, even many non-socialists are now detesting capitalism, describing it as a system of organized, egoistic greed for favoring the already rich at the expense of the people. The governmental policy of bailing out the irresponsible gamblers, the bankers, in stead of using that money (and not just a minor part) for financing constructive projects that could restore the economy and reduce unemployment considerably is a very obvious confirmation of this understanding.

I talked with a friend, the CEO of a real estate company yesterday – she wept out of despair when thinking of the thousands of honest, good people now being thrown out of their houses into misery due to foreclosures. What do you think her feelings is about capitalism and the US?

If the US government does not help defuse the CDS bomb, by taking due responsibility for it, this will generate intense hatred among those billions all over the world, whose “houses it has burnt down due to carelessness, preventing the firemen from stopping it”. Media all over the world have made it very clear why and how it happened, so every literate person knows that the US government solely caused the present depression and enabled the creation of CDS – and persistently refuses to stop them, because its very evident prime, if not only, priority is to foster the interests of the destroyers of world economy – the Wall Street capitalits.

The US can forget exporting anything however cheap and useful when the full impact of the depression becomes evident. Do you believe anyone outside the US will ever want to buy products of a country that has destroyed your country and has thrown you into the severe sufferings of poverty and hunger through enabling reckless casino capitalism?

The people of the US has supported the policies leading to the present severe global crisis by electing these irresponsible politicians.

The US people claims to be the prime defenders of freedom. To people outside the US it looks rather like the defense of the freedom to destroy the economies of other countries.

It is high time that the american people takes the responsibility for its mistakes and demands that the US government takes the full economic responsibility for the destructive financial actions of the US that have cause this global depression and for the defusion of the terrible CDS bomb.

For example, when Glass-Steagall was repealed in 1999, FDIC insurance should have been suspended along with it. By tinkering with the balanced elements of the Act, we created an innate moral hazard (e.g. bankers could now engage in risky investment with government-insured depositor money).

Regulation should only be enacted when there is a clear moral hazard. Otherwise, market forces should be allowed to work their magic.

In a truly free market, bad companies fail before they become too much of a problem. In artificially manipulated markets like we have today, small issues are allowed to bubble (pun intended) into disastrously large worldwide financial debacles due to paradigms that lead to unintended consequences. The intentions are good, but the outcomes horrific.

So, if regulation ostensibly led to the creation of instruments that were not regulated, what is to keep new instruments from springing up out of new regulation?

Constant interference in the free market will only lead to more complex problems. But I guess we’re in too deep now, to back up. How unfortunate.

Your ideas deserve to be heard, and I suggest you make every effort to expand your listeners to those in positions of decision-making.

Thank You,

It seems to me the reason a lot of this stuff is not being cleaned up is because OUR POLITICIANS’ dirty hands are involved in all of it. They have been paid (via lobbying money which is nothing but outright bribery – let’s face it) to look the other way or bail these companies out. Do you notice that the President, Sen. Dodd and Cong. Frank NEVER mention Fannie Mae or Franklin Raines when they start harping about executive responsibility and clawbacks? With Dodd, Frank and President Obama having been the #1, #7 and #3 recipients of Fannie Mae lobbying largesse – they have incentive NOT to say anything. Franklin Raines used his millions in severance to become the #1 campaign donor to President Obama’s campaign. It is not just executives who are guilty in this mess. Our politicians (and I am not excusing Republicans either since it was them who got rid of Glass-Steagall which accounted for a lot of this as well) have taken lobbying money (bribes) from these banks, mortgage companies, etc. to facilitate legislation in their behalf. There were articles in the New York Times in 1999 and 2003 warning Dodd and Frank that Fannie Mae and Freddie Mac needed some sort of regulation or this credit crisis might erupt. Did they listen, NO! They did not regulate them when given the opportunity (there was an attempt in 2005 to regulate Fannie and Freddie and Dodd, Obama and Frank voted against it). They voted to later bail them out WITH OUR TAXPAYER MONEY and in a conservatorship not a receivership where they could have sold off parts of the company. They expect the American people to pay for this in higher taxes in the future and yet NONE OF THESE BUMS have returned any of that lobbying or campaign money they received from these banks and mortgage companies (and I mean republicans as well) they have bailed out with OUR TAXPAYER money. I call their behaviour if not outright criminal certainly IMMORAL. How can the system be fixed when those who are responsible for this mess are still running things?

The solution to this problem requires two steps.

1. Declare null and void all credit default swaps.

2. Go to #1.

There a few more things we could do to get rid of some of the $1.14 quadrillion in derivatives floating around the world. (That’s the BIS number, by-the-by.)

Place position limits that severely restrict the ability of those without a legitimate business interest to enter derivative markets. If you aren’t in the business of oil, you don’t get to play oil futures with the big boys. In other words, make sure that “commercials” have precedence and other players have small positions.

Begin to standardize and regulate all derivative contracts. This will take a bit of time, but it’s easy to do. Give the CFTC some real power and the ability to use it.

Start RICO investigations of the oil market from $50 to $150 and back down. If ENRON was complicit in the energy and power problems in 1998-2001, the parallel seems to be that there were some “hidden hands” operating in the oil market this time around. Find them and cut them off at the shoulder. This probably means shutting down or restricting such players as J. Aron and Phibro.

While talking of RICO, there appear to be sufficient questions surrounding Goldman Sachs to justify an investigation into its activities. It seems that every time there is a problem and vast amounts of money lost, Goldman is there. Every time vast amounts of money are dispensed, Goldman is there. Whenever we see these vast amounts of money being dispensed, it’s being handed out by ex-Goldman partners. Enough is enough.

Bring back Glass-Steagall.

Start proceedings to break up the largest banks, starting with Citi, BofA, Morgan and Goldman.

This is a start. I’m sure you can come up with more.

Cheers,

Barry Harmon

For example, when Glass-Steagall was repealed in 1999, FDIC insurance should have been suspended along with it. By tinkering with the balancing elements of the Act, we created an innate moral hazard (e.g. bankers could now engage in risky investment with government-insured depositor money).

Regulation should only be enacted when there is a clear moral hazard. Otherwise, market forces should be allowed to work their magic.

In a truly free market, bad companies fail before they become too much of a problem. In artificially manipulated markets like we have today, small issues are allowed to bubble (pun intended) into disastrously large worldwide financial debacles due to paradigms that lead to unintended consequences. The intentions are good, but the outcomes horrific.

So, if regulation ostensibly led to the creation of instruments that were not regulated, what is to keep new instruments from springing up out of new regulation?

Constant interference in the free market will only lead to more complex problems. But I guess we’re in too deep now, to back up. How unfortunate.